Woolworths milk deal step a ‘positive’ for WA

FORTY nine WA dairy farmers can expect to be paid the equivalent of roughly two cents more per litre for their milk after Woolworths ended eight years of selling its own brand milk for $1 a litre last week.

FORTY nine WA dairy farmers can expect to be paid the equivalent of roughly two cents more per litre for their milk after Woolworths ended eight years of selling its own brand milk for $1 a litre last week.

Brownes Dairy processes Woolworths milk for the supermarket chain in WA and managing director Tony Girgis said all of its suppliers could expect the first of the extra income to be added to their monthly milk payment from next month.

Mr Girgis admitted Brownes was caught “on the hop” because it did not have prior notice Woolworths intended lifting the retail price of its two and three-litre own brand milk by 10c/L from Tuesday and passing the increase back to dairy farmers via Brownes.

He said the extra 10c/L would be distributed to farmers on the basis of the total volume of milk they supplied each month.

Potentially a portion of the milk picked up from each of Brownes’ 49 farmer suppliers can go into Woolworths milk, but Woolworths milk is not necessarily segregated from other milk during processing at the Balcatta factory, so it is impossible to determine who supplied specific volumes in any given batch.

Mr Girgis said he believed the extra 10c/L would equate to an effective price rise for Brownes’ farmer suppliers of “roughly around 2c/L”.

This would be “confirmed when we’ve done the maths”, Mr Girgis said.

He said he had “no idea at this stage” how much income the extra payment might bring in each month for individual suppliers.

Adding about 2c/L to Brownes’ average weighted milk price would leap frog it over Parmalat-owned Harvey Fresh’s milk payment price and close the gap on Lion Dairy and Drinks’ 50c/L this season, although Brownes pays most for milk through summer with a 61c/L summer production incentive.

Announcing the change to its milk marketing policy on Monday, Woolworths indicated all of the extra 10c/L consumers now pay for two and three-litre Woolworths milk at the cash register will be returned to dairy farmers via its milk processors.

Woolworths indicated the extra would be paid “in line with the usual payment cycles”.

But it also indicated the extra payment would be separately identified from standard milk payments so it could be subject to “continued oversight and be independently audited” to guarantee it goes where Woolworths intended.

Dropping $1/L milk, which it hurriedly introduced in January 2011 in response to Coles initiating $1/L Home brand milk, is effectively an expansion of Woolworths’ drought relief milk model, introduced in some Eastern States last September, to its national market.

In Queensland, New South Wales, Australian Capital Territory and Victoria, Woolworths has been charging $2.20 for its 2L and $3.30 for its 3L containers of Woolworths milk since September.

The extra 10c/L has been distributed by its Eastern States’ processors to drought-impacted dairy farmers.

Woolworths said that move delivered $5.8 million in relief to more than 285 dairy farmers.

Because Woolworths in WA was not involved in drought relief milk, Brownes had not been collecting and distributing an extra 10c/L on Woolworths milk until it started with the national marketing model on Tuesday.

“It is an additional step for us (distributing the extra 10c/L) but not an issue, we can handle it,” Mr Girgis said.

Asked what he thought the Woolworths move might mean for the WA dairy industry, Mr Girgis said it was “definitely a positive and a long overdue step”, but it was too soon to tell what the overall impact might be.

Woolworths Group chief executive officer Brad Banducci said the drought relief model seemed the “most effective way to guarantee price increases end up in the pockets of Australian dairy farmers”.

Mr Banucci acknowledged the move was not an alternative to addressing structural issues within the industry and said Woolworths would continue to consult and engage with dairy industry bodies on longer-term reform and payment mechanisms.

“We believe the long-term sustainability of our dairy industry – and the regional communities they (farmers) help support – is incredibly important for Australia,” Mr Banducci said.

“In our consultation with industry bodies, including the Australian Dairy Farmers Association (ADF), its State members and NSW Dairy Connect, we’ve heard the outlook will continue to be extremely tough for dairy farmers right across the country.

“This is affecting milk production and farm viability, which is devastating for farmers and the regional communities in which they live.

“It’s clear something needs to change and we want to play a constructive role in making this happen.

“While we’re realistic this won’t solve broader structural issues, we hope it will help inject much needed confidence into the sector and the regional communities dairy farmers do so much to support,” he said.

Dairy industry leaders and State and Federal agriculture ministers have applauded Woolworths’ move.

WAFarmers dairy section president Mike Partridge described it as a “very good start”.

He called on Coles and Aldi to follow Woolworths’ lead by ditching $1/L milk.

“(Woolworths dropping $1/L milk) is a very good start – but that is all it is – a start to a long journey of returning the dairy industry to profitability and sustainability and we’re a long way off that,” Mr Partridge said.

“It is a start to reversing the damage that was done to the industry over the past eight years by $1/L milk.”

Mr Partridge said Woolworths’ decision was an example of “advocacy at work and that needs to be pointed out”.

“Woolworths didn’t just arrive at this decision of its own accord.

“WAFarmers and our counterparts in other States have been working through the ADF and other organisations, lobbying for eight years to try to achieve this result,” Mr Partridge said.

ADF chief executive officer David Inall said Woolworths’ move was “a game changer in the fight against discount dairy that has long frustrated the industry”.

“It is reassuring that Woolworths has committed to deliver the full 10 cent increase back to those farmers who supplied the milk into that product category,” Mr Inall said.

“Removing $1/L milk is not just intended to restore farmers’ financial confidence, but it will also boost confidence in regional communities and small businesses that rely on the industry.

“Consumers can buy fresh milk from Woolworths knowing they are supporting the Australian farmers who supplied it,” he said.